Can two people sell separate properties and 1031 exchange into one w/LLC parnership?

Question

Here is the quick question: My mother in law is looking to sell bare land in Idaho that is owned outright. It is expected to bring 750k.  I have a property that I am selling in Utah at 630k. Is it possible for us to form an LLC and 1031 these into one 1.5 million dollar property in Oregon so long as we abide by the timing guidelines concerning the exchange.  TIA

Jackson Hanssen · Answer

Hey @Chase Leibfritz, You can't do this directly. As Chris mentioned, the taxpayer has to stay the same between the 1031s. However, you have two options to solve this.

You can do a 1031 to a TIC (tenants in commons) with your MIL, where you will both own a proportional share in the property. This comes with some other ramifications around legal liability and the ability to get a mortgage on the property.

The other way to fix this is to create an LLC now, and both you and your MIL contribute the current properties into the LLC, then the LLC 1031 exchanges the old properties into the new property. I tend to prefer this route.

If you want to hop on a call and go over specifics I am available most of this week. I am a 1031 exchange facilitator

Chris Martin · Answer

The experts can verify, but the deed must stay consistent for a 1031 exchange to be viable. I've only done two exchanges, so am no expert, but I don't think what you suggest would conform to 1031 guidelines.

Sam Levin · Answer

I'm not 100% sure on this either, but I believe the way that it would work is you form the LLC first and re-title the relinquished properties into the LLC before sale. This way the selling entity is the same as the buying entity as per 1031 rules. You should definitely find an experienced 1031 facilitator to ask about this.

Dave Foster · Answer

@Chase Leibfritz, this is a two step process but can be done.  Each of you will need to do a 1031 exchange on the property you are selling.  You will need to purchase investment real estate worth at least $630K ish.  She will need to take title to investment real estate worth at least $750K ish.  You can do this buy purchasing a % of the same real estate as tenants in common.  That satisfies the requirement that the seller and buyer be the same for your 1031s.

Once you own the property as tenants in common you can either form an LLC and contribute the property into the LLC in exchange for membership interests respective to the amount you are contributing.  Or you could just leave the property as tenants in common and form an LLC that will not own the property.  But will manage it.  Assume the risk of management.  And collect income, pay bills etc.

Whichever is most beneficial for the state you're in.  And any estate planning.

Can two people sell separate properties and 1031 exchange into one w/LLC parnership?

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